How Should BPO React to RPA?

This article first appeared in Outsource Magazine, seeking to answer the question: what are the ramifications for major outsourcing providers of the robotic process automation revolution?

In April 2013, Source ran an RFI process that asked the major BPO service providers for their views on this whole robotic process automation thing. We had 16 respondents which included almost all of the key players, domestic and offshore. The over-riding theme of the responses could be summarised as “yeah, looks interesting, and we’ll probably shout about it a bit, but it’s not going to change our business that much”.

Here’s a few choice quotes to further illustrate that: “We do not anticipate any significant reduction in outsourcing”; “Robotics is a way to improve the way outsourcing services are delivered”; “Robotic process automation is a very interesting option.” Hardly earth-shattering stuff.

Nearly one year on, very little has changed. (But with one important exception, that has been announced whilst I have been writing this article – more on that shortly). We are constantly talking to the service providers about their expectations and ambitions regarding robotics, but we see disappointingly low levels of ambition, or, when there is some interest, it quickly evaporates when it is realised that investment will be required. It is often viewed as a point solution, or a way to win the next big deal, but rarely as a strategic investment.

Perhaps unsurprisingly, we see things completely differently.

There are a number of factors about robotic software automation that make this significant as a new era in outsourcing (after outsourcing itself, then offshoring).

Firstly, there is very little need to involve IT in any robotic automation, especially at the user end. All of the clever stuff is packed into the software which means ‘normal’ business people can implement and automate their own business processes. This empowerment will mean less reliance on BPO providers to deliver savings and less need for systems integrators to implement changes.

Secondly, this technological power will increase exponentially over time. So we won’t see gradual improvements in service levels or measly percentage decreases in costs – we’ll witness fundamental leaps in capability that will enable more and more complex tasks to be automated, allowing them to be done at fractions of the original cost and multiples of times quicker. Service providers have tended to base their business models on an understanding of what robotics offers today, but not what will exist tomorrow, thus potentially missing out on whole new markets.

Thirdly, the environment that robotics is growing up in is changing. I’ve already written about the ‘Death of Outsourcing’ in the erstwhile journal, and the death knell is only ever sounding stronger. This is not to say outsourcing will go away, it’s just that it won’t exist any more as a discrete ‘thing’ that people do. Outsourcing will be a natural part of a wider strategy, IT say, or part of a transformation program, but rarely will it be a project in itself. Whilst there will still be a need for service providers, their role and importance to the business will change dramatically, and robotics will only accelerate that trend.

Finally, there is cost. Commonly quoted numbers put the cost of a software agent at one third of the price of an offshore FTE, or one ninth of an onshore FTE. If you then consider that the software agent will never make a mistake and will work 24 hours a day, 365 days a year, then the business case should be clear. The hype about robotic automation has only just started and end users don’t yet fully understand the power that they potentially have. Once businesses realise that they can achieve significant benefits without necessarily using an outsource provider, then it’s clear that the service provider business model has to fundamentally change.

All of these factors mean that there will be a huge impact felt by the service providers, whether they like it or not. They will experience fundamental changes to how their business model works: a provider’s cost base will become decoupled from their internal personnel costs; whereas success for many BPO providers is currently measured in FTEs employed, it’s clear that robotic automation will result in a significant reduction in the number of staff required to manage a given volume of transactions.

This decoupling will also mean that providers’ charging mechanisms will naturally shift towards an output-based model with service provider costs linked to customer business outcomes. This is a positive outcome for all parties, so long as the providers can react quick enough and are able to support their customers in designing appropriate measurement frameworks.

The cost differential will also mean that re-shoring will become a viable option: customers will be able to reduce their outsourcing risk by employing a mixture of human and software agents in near-shore locations at the same price as a traditional offshore service. Those providers that rely heavily on an offshore model will obviously be impacted the most.

If the technology matures well enough, and the benefits accrue accordingly, then it may become increasingly viable for customers to bypass the service providers all together. This DIY approach, involving the clients most experienced staff coupled with software agents for the majority of the transactional work, would deliver all of the benefits of traditional outsourcing with very few of the downsides.

So, how are the service providers reacting? As I mentioned earlier, there is still a general lack of foresight and vision amongst the population – investment in robotics is not forthcoming, unless it can be associated with immediate and significant revenue gain. Short-termism in a time of paradigm shifts is a dangerous game to play.

There are a few providers that have taken the plunge. IBM is investing large amounts of money in its Watson brand of super-computing – this could deliver automation-for-the-masses if it takes off as the firm hopes. Infosys and IPSoft have a non-exclusive partnership to deliver automation in the IT arena, but more significant is Accenture’s recent deal with IPSoft to develop an automation service offering in the business process space. This could be the tipping point that brings automation into the mainstream, and wakes up the other providers to its full potential.

Looking further ahead, there is obviously the opportunity for a new type of service provider to enter the market – one with automation at its core, one that uses human beings only if it is absolutely necessary to do so (compare and contrast that to the current BPO mindset).

Other FTE-based service providers may actually benefit from the adoption of automation. One of the current weaknesses of the technology is that the original inputs into any process need to be digital. Whilst OCR can handle much of this, there is still an initial need for transcribing paper (especially hand-written) documents. Impact Sourcing, where disadvantaged people from poor countries are given the chance to contribute to society through a meaningful job as a transcriber, is the obvious answer that benefits a whole lot of people all at once.

So, is the future bleak for the traditional BPO service providers? Only if they remain with their heads in the sand and baulk at investment. As well as adopting new technology-based business models they need to up their game by offering higher-value services. Automation only automates what you already do, whether that’s a good or bad process: there are huge benefits to be gained from implementing best practice alongside the automation services. And that naturally then brings in change management and transformation services. Automation, as well as delivering huge benefits of its own, can actually open up completely new revenue streams for the service providers that are brave enough to go there. Let’s hope they are not lacking in courage.

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